by Angela Lovell

Mar 10, 2010

The economics of surplus.

Following a post from yesterday in which I reproduced something that was sent to me by e-mail from an anonymous author, I have received many comments about the value of economic systems.
Although I make no claims to be an expert in economics, I do have certain theories about how we arrived at our current economic system and where the flaws lie. So, in my own words, I wanted to try and explain modern economics and its warts as I see it.
What prompted me to dredge my thoughts together was this comment left on my blog yesterday by Meta Kaizen, which I greatly appreciate, but respectfully do not entirely agree with.
“This piece simultaneously explodes the myth that a barter economy is sustainable, and also correctly assumes the necessity of a credit system- each person gave something of value in advance of getting paid. An astute reader will also realize that any object would do- as long as it was commonly accepted. Sure, it could have been a nugget of gold, but it didn't have to be.

It is the single most elegant illustration of the virtues of the monetary and credit economy and fiat money I've ever read.”
I disagree that a barter system is not sustainable. Barter and non-monetary trade systems survived for countless centuries prior to the development of defined monetary systems. Perhaps my interpretation of a barter system may be at fault, but I do agree that, even in a barter system, there has to be some assigned values to the goods and services being exchanged, but the system only becomes unsustainable when those values are not assigned because of need but because of greed.
When supply and demand even each other out the system remains in balance. It is the control mechanisms that are the flaw in our modern economic systems. And those control mechanisms only can be exercised with the creation of a surplus.
For a system to be sustainable there does have to be an element of profit built in.  But it is the interpretation and emphasis placed on profit that determines sustainability. In a sustainable system the profit must be sufficient to ensure enough to meet current needs and allow for a reserve to provide a cushion against unexpected problems like a drought or crop failure in a subsequent growing season. When profit begins to provide surplus above and beyond the reserve required to ensure sustainability, it then presents a problem, which is, who will benefit from it?
Now the sustainability of the system is in the hands of whoever controls the surplus. In an ideal situation it should be those who produced it; the community should all share equally in the profit from its disposition. But our modern societies evolved systems where that excess passed into the hands of first nation states, then rulers and eventually corporations. So the benefits of surplus production and the profits it derives are now in the hands of a very few beneficiaries who control the system, instead of the people and communities that provided that excess in the first place.
There is also an illusion that somehow the consumer determines the “market”, that fantastical, self-regulating entity which supposedly keeps everything in balance and evens out supply and demand, creating healthy competition and lowering prices. Again it is not the market that dictates prices, but the people who control the surplus.
Scarcity and excess are what determine the market and they are to a large degree artificially created and endlessly manipulated. Because there is a huge demand does not necessarily mean that supply will be allowed to fully meet it – because that will depress prices – so the supply will be carefully managed to insure that it is just far enough behind demand to keep prices high. But in fact those who control the supply also decide what amount of competition there will be and so manipulate the market to also control prices.

The problem is further exacerbated when you introduce the concept of charging a fee (interest) for the credit being extended to purchase something for which you do not have the equivalent value to trade. Interest starts to ratchet up the system. The spiral deepens and the value of the service or product that is being purchased can be raised ever higher and ever more borrowing is necessary to perpetuate the system.
People at the bottom of the chain in particular get squeezed the hardest, as the value of their products decreases forcing them to both produce more and borrow more.
We live in a world where the supply of everything (including products and the credit needed to buy them) is dictated by a handful of large corporations. At the same time, increasing demand is used as an excuse to do all kinds of things that are just geared to manipulate the system ever further and generate excessive profits for those corporations. As an example we constantly hear the argument, made to justify the need for GM crops, that we need to feed the world; that we need to increase yields because of ever escalating demands due to a growing global population.
Experts have estimated that we have plenty of production capacity with the existing agricultural land base, using current crop varieties, to more than keep apace of that growing demand. But it is the manipulation of the global food system that prevents this. We do not need technology or more pesticides, herbicides and fungicides to feed the world – we need the system to be re-organised so that the emphasis is on feeding people rather than making profits.
It is not in the interest of the corporations that control the system to satisfy the demand for food or any other commodity. Feeding people is not as profitable as keeping them hungry. Raising even the spectre of scarcity is very good for business. Scarcity makes for better profits.


So there you have my tuppence on the way our current economic system works.
It is an extractive system to which most of us, to one degree or another, must enslave ourselves to meet our basic requirements and build a reserve against unexpected problems. Sustainability is sacrificed to expediency, and consumerism provides us with that little sugar coating to make the pill a bit easier to swallow.

Copyright2010, Angela Lovell.
Photograph: AP Photo/Monty Davis
Clipart from Clipartheaven.com

2 comments:

  1. National Security Study Memorandum 200
    Implications of Worldwide Population Growth
    For U.S. Security and Overseas Interests
    (THE KISSINGER REPORT)
    December 10, 1974

    ... future Henry Kissinger had in mind in 1970 when he said: "Control oil and you control nations; control food and you control the people."

    ReplyDelete
  2. Thanks again I will read this.
    Angela

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